NEZA Communique: Investments in Free Zones Attracted $300bn, N650bn into Govt Coffers, 600,000 Jobs Created

*Operators oppose removal of incentives, waivers in proposed tax amendment bill, say move will erode investor confidenceJames Emejo in Abuja

Total investments in the country’s Free Trade Zone (FTZs) stood at over $300 billion as of January 2024.
Similarly, the economic zones generated N650 billion into government coffers through various government agencies, including Nigeria Custom Service (NCS), Nigeria Ports Authority (NPA), Nigeria Immigration Service (NIS), as well as the Free Zone Regulatory Authorities, among others, in the last five years. This was disclosed in a communique issued after an emergency stakeholders meeting of the Nigeria Economic Zones Association (NEZA) in Abuja.
The stakeholders said the initiative had created over 100,000 direct and 500,000 indirect jobs through the free zone activities.
That was as 98 FTZ operators expressed their objection to the removal of tax exemptions contained in the existing FTZs law, as well as protections against levies, duties and foreign exchange restrictions in the proposed Tax Amendment Bill currently before the National Assembly.

They said the amendments tended to destroy the attractiveness of the free zones initiative.
The operators further expressed apprehension that removing exemption from taxes and other levies would result in massive capital flight and job losses, and stall the realisation of the country’s industrialisation and export expansion drive.
They said while the intention of the federal government to consolidate and modernise the tax framework in the country through the bill was commendable, “some of the sections are a significant departure from the existing tax framework for the operation of Nigeria’s free zones and will have a grave impact on the survival of the free zone scheme”.
The association said, “This is particularly evident in Sections 57, 60,198(2), and 198 (3) of the Bill and the Second Schedule to the Bill;

“If these provisions are passed into law, they will alter/rescind decades-long tax exemptions and incentives that have historically been central to the operations of free zone enterprises and which, indeed, constitute the ‘offer’ that was made by the FGN to international investors, and which they have accepted over the decades and have based their long-term investment decisions and models on.”

The communique further stated that by removing exemptions from taxes contained in the existing law, as well as protections against levies, duties and foreign exchange restrictions, the amendments will destroy the attractiveness of free zones, result in massive capital flight and job losses, and stall the realisation of Nigeria’s industrialisation and export expansion ambitions and the other objectives of free zone scheme in the country.

NEZA added that the provisions of the bill, which intended to repeal Sections 8 and 18(1) a of NEPZA and OGFZA Acts and significantly reduce the tax exemptions and incentives available to Free Zone Enterprises, would amount to using a sledgehammer to kill an ant while trying to streamline the free zone provisions.
The operators stated that these provisions were inserted based on a false assertion that the law allowed for only the sale of 25 per cent of goods into the Nigeria Customs Territory while ignoring the approval granted in 2002 by the federal government that up to 100 per cent of the product from free zones might be sold into the Nigeria Custom Territory upon payment of appropriate custom duties.

They pointed out that regulatory certainty remained one of the key concerns for any investors in determining the appropriate destination for their investments.
NEZA further argued that the sudden and abrupt withdrawal of the incentives and concession, despite the volume of FDI brought into the country based on the fiscal incentives promised by the federal government was “harsh and has the potential to create a negative impression of Nigeria as an investment destination”.

It added that the sudden withdrawal of the incentives would lead to significant international legal actions with consequent backlash of sharp reduction in foreign investment, drop in the global ranking for ease of doing business and diversion of investment meant for Nigeria to neighbouring countries with friendlier incentives.

The association said Nigeria was in the process of economic reform, stating that “pulling the rug off the feet of free zone entities through this bill will amount to self-sabotage on the part of FGN and it will stand out as a classic example of policy somersaults in Nigeria, significantly damage the country’s image within the global investment community, erode investors’ confidence, impair Nigeria’s credibility to keep investment promises and attract foreign direct investment”.

It stated the amendment will also send a strong negative signal to potential investors that the country was not ready for business.

The group further pointed out that a key policy decision of that magnitude should have been made with due consultation and consideration of all relevant stakeholders involved.

It said, “In this particular case, the free zone community was not consulted to afford them a fair and impartial forum to raise their concerns and debate the impact of such a change on their businesses and investments as well as wider economic implications; and

“Without waiting for the passage of the bill at the National Assembly, the Chairman of FIRS hurriedly raised a memo to Mr. President based on some inaccurate claims to portray the Nigeria Free Zone Scheme in bad light, upon which Mr. President granted approval of his prayers.

“The stakeholders therefore agreed and recommended that, given the potential negative impact of the Nigeria Tax Bill, 2024 on the Free Zone Scheme, the FGN should consider the position of Free Zone Stakeholders and expunge Sections 60, 198(2) and 198(3) of the Bill; exclude free zone enterprises from the scope of application of Section 57 of the Bill; and delete the current Second Schedule of the Bill in its entirety.”

The stakeholders also mandated the Nigeria Economic Zones Association (NEZA) to present its position to the National Assembly as well as the Minister of Industry, Trade and Investment.

The stakeholders also mandated NEZA to write a memorandum of appeal, on behalf of free zone investors, to President Bola Tinubu.

They urged the president to withdraw his approval of the prayers contained in the memorandum dated 20th October, 2024 and titled “Operations of Free Trade Export Processing Zones” written by Dr. Zacch Adedeji.

The communique added, “This is because the prayers were premised on false and misleading claims by the author; and convene a high-level summit on Nigeria Free Zone Scheme where stakeholders, lawmakers and experts will be given the opportunity to examine all existing parameters and chart a bright pathway for the Scheme as a hub for sustainable economic development.”